UBS Trader Faces New Charge

Kweku Adoboli, right, is escorted to a prison van as he leaves a London court. Prosecutors expanded their case against him.
Bloomberg News

By

Deborah Ball,

Cassell Bryan-Low and

Carrick Mollenkamp

September 23, 2011

As British prosecutors expanded the charges against alleged UBS AG rogue trader
Kweku Adoboli,
the Swiss bank's board was preparing to examine the first report on how the 31-year-old is alleged to have racked up $2.3 billion in losses.

The board, meeting in Singapore, may also discuss whether to demand the resignations of Chief Executive Officer
Oswald Grübel,
as well as
Carsten Kengeter,
chief of its investment bank, according to a person familiar with the situation. The results of UBS's initial investigation could influence the board's decision, this person said.

Bad Bets, Big Losses

Last week, UBS disclosed that a London-based trader at its investment bank had generated $2.3 billion in losses through what it called unauthorized trades. People familiar with the situation say Mr. Adoboli is that trader.

Last week, U.K. authorities charged Mr. Adoboli with false accounting dating back to 2008, as well as fraud by abuse of position that dated back to January 2011. On Thursday, prosecutors lodged an additional charge, alleging he fraudulently abused his position to conduct unauthorized trades dating back to Oct. 1, 2008, and continued through the end of 2010.

UBS has said the unauthorized trades occurred over the last several months. A person familiar with the situation said that despite the disparity with the time frame indicated by U.K. prosecutors, the bank still believes the unauthorized trades were confined to the shorter period.

Mr. Adoboli, closely shaven and dressed in a gray suit and tie, listened to the proceedings in a London court. His lawyer,
Patrick Gibbs,
said his client was "sorry beyond words." He added that Mr. Adoboli had gone to UBS "and told them what he had done, and stands now appalled at the scale of the consequences of his disastrous miscalculations." Mr Gibbs didn't request that his client be released on bail, so Mr. Adoboli remains in custody. The next hearing is scheduled for Oct. 20.

Mr. Adoboli hasn't entered any pleas in response to the charges and isn't required to do so at this point.

A person familiar with the bank's early findings said UBS compliance officers first approached Mr. Adoboli with questions about his trading early last week, after which the trader admitted the wrongdoing.

Meanwhile, UBS's board will receive Friday, at the meeting in Singapore, the first sketch of the bank's initial findings as to how a trader allegedly managed to evade risk-control systems and rack up huge losses, a report that could help them decide on whether to pursue possible high-level management changes, according to a person familiar with the situation.

It is as yet unclear what toll, if any, the rogue-trading debacle will take on UBS's management. In a Sunday memo to staff, Mr. Grubel said "ultimately, the buck stops with me." But he has since added that he isn't considering resigning and still has the board's support. The board may decide to keep Mr. Grübel, in part because wholesale change in the top ranks at UBS over the last several years means the bank lacks a deep bench of potential immediate successors, say analysts.

The spotlight is also on 44-year-old Mr. Kengeter. Mr. Grübel was already widely expected to make significant cuts in the investment bank, and those moves will be accelerated in the wake of the scandal, according to a person familiar with the situation. That marks a reversal of Mr. Kengeter's two-year campaign to expand the unit and launch it into the top ranks of global investment banks.

While Mr. Kengeter, a former Goldman Sachs partner, has earned plaudits for helping the investment bank to recover from the 34.3 billion Swiss francs ($38.1 billion) in losses it recorded in 2008, he has caused friction within the bank over pay and other matters, say people familiar with the situation. His blunt approach has also created tensions, they say.

In a memo to staff earlier this week, Mr. Kengeter struck a combative tone, urging staff to "unite in our determination to move forward forcefully and decisively." Some analysts expect Mr. Kengeter to step down, to be succeeded by
Sergio Ermotti,
UBS's new head for Europe and a former senior banker at Merrill Lynch.

Another potential successor to Mr. Kengeter is
Alex Wilmot-Sitwell,
co-CEO of UBS's Asia-Pacific operations. Mr. Wilmot-Sitwell previously was co-head with Mr. Kengeter of the investment bank and is a veteran British banker. They were named as co-heads in 2009 when then-CEO
Jerker Johansson
departed. In 2010, Mr. Wilmot-Sitwell moved to the Asian unit.

A spokesman for the bank had no comment on future leadership of the investment bank.

To understand the impact of the scandal on UBS's top ranks, some are looking to the fallout at Société Générale SA after the French bank revealed in January 2008 that a trader had generated $7.2 billion in losses due to unauthorized trades, the biggest-ever loss by a rogue trader.

When news of the trading loss broke, Chairman and CEO
Daniel Bouton,
investment-banking chief
Jean-Pierre Mustier
and co-CEO
Philippe Citerne
all tendered their resignations, but the board asked them to stay.

Mr. Bouton stepped down as CEO in May 2008, but remained chairman until spring 2009. Mr. Mustier, once touted as a possible successor to Mr. Bouton, stepped down as investment-banking chief six months after the scandal, but remained at the bank for two years. He now runs investment banking at UniCredit SpA. Mr. Citerne retired from the bank in April 2009.

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UBS Trader Faces New Charge

As British prosecutors expanded the charges against alleged UBS AG rogue trader Kweku Adoboli, the Swiss bank's board was preparing to examine the first report on how the 31-year-old is alleged to have racked up $2.